TANZANIA: THE country digital loans demand is growing at a fastpace, despite being offered at high interest rates amid risk management issues.
The shadow banking industry—formal and semiformal Non-Bank Financial Institutions (NBFI)—are leading in issuing digital loans that grew to 2.125tri/- last year from 1.131tri/- in 2022.
University of Dar es Salaam (UDSM) Business School, Research Centre for Banking and Financial Services Coordinator Esther Ishengoma said digital loan product that was introduced a decade ago now reaches more people especially in rural population than microfinance institutions (MFIs) and banks.
“Being highly flexible and innovative, some NBFIs, in shadow banking industry, have been introducing or facilitating the introduction of new financial products, processes, markets, institutions and organisational forms of offering financial services,” Prof Ishengoma said.
The Professor, who serves as a member of the board of directors at Bank of Tanzania (BoT), was the main speaker at a Day Two of the 21st Conference of Financial Institution (COFI) that deliberated on financial sector stability in the wake of economic crises: Regulations, Innovations and Risk Management.
The shadow banking is charging between 14 and 30 per cent loan interest rate, which according to Prof Ishengoma “is not fair” and some are paying upfront.
“Yes, there are risks behind digital loaning but if study shows that loan repayment rate is 95 per cent, then we need to ask ourselves why charge high interest rates?” Prof Ishengoma wondered.
Her findings applied mixed research: desk research and content analysis—especially governance issues, internet search and products usage experimental, Finscope 2023 survey, and analysis of primary data from the banking industry. Shadow banking are important to social and economic development as they are including people, firms and institutions which were initially excluded by the traditional banking sector.
“The industry is not doing this alone, there is strong interactions with the banking industry…the risk is to avoid ‘mobile money- run loans,” she said.
This is possible through financial innovations which are believed to have increasingly taking place in the shadow banking industry when compared to the traditional banking industry.
However, a milliondollar question is whether the interactions between the shadow banking industry— Mobile Money Operators (MNOs), Microfinance Institutions (MFIs) and other NBFIs—and the banking industry are well regulated for the stability of the financial system in the country.
Finscope survey data between 2017 and 2023 show that savings through MNOs reached about 34 per cent of tele-subscribers on mobile money despite being introduced in 2008.
Additionally, 50 per cent of the people who said they were confident of MNOs, mostly were from the rural while 42 per cent were female.
“If 23 per cent of those who borrowed from MNOs did not have national IDs, how reliable is the credit analysis that is performed to assess their customers as required by the BAFIA [The Banking and Financial Institutions Act, 2006] regulation?” she queried.
The survey further shows people’s confidence on MNOs’ digital loans comes third, and only 7.7 per cent feel confident because there is no contact with the person delivering the service.
Despite the central bank trying to put several regulations in place, there are some challenges such as sharing digital borrower’s data. CRDB Group CEO and Managing Director Abdulmajid Nsekela said the amount dished out by MNOs in loans is larger but not enough to offset bank loans.
“Yes, MNOs loans is a large amount but not larger enough to create a bank … CRDB, too is in the process of introducing digital loans,” Mr Nsekela told ‘Daily News on Saturday’.
University of London, Director of the Centre for Sustainable Finance at SOAS, Prof Ulrich Volz said efforts should be directed towards addressing climate change impacts and financial risks, including looking at what should be done in terms of mitigating risk while working on building a resilient and inclusive financial system in the country.
“There are really a host of different physical climate change issues facing the country. And in particular, there are some key sectors, including agriculture, tourism infrastructure and the energy sector that will significantly be affected by climate change,” Prof Volz said.
Dr Muhsin Salim Masoud, a former CEO of People’s Bank of Zanzibar, said innovation to mitigate headwinds should also focus about economic crisis facing customers.
“There could be some problems facing the specific banks but will also impact the customer…. Therefore, we should safely guard their interests,” he said.
The 21st COFI event was concluded yesterday and discussed three topics and was attended by some 1000 participants some virtually.
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